Pertamina, Japan in talks on Arun field

Pertamina, Japan in talks on Arun field

HONG KONG (Dow Jones): Indonesia's state-owned oil and gas concern, Pertamina, is currently negotiating with Japanese buyers over the possible extension of liquefied natural gas supply from the Arun field.

However, Japanese buyers appear less than eager to extend the contract, which expires in December 2004, and are discussing a "much, much lower" volume than those under the current deal, according to a Pertamina LNG official involved in the talks.

The extension of the contract is critical for Indonesia given the industry's expected supply glut in coming years. In particular, Indonesia depends heavily on the field, with its 14 trillion cubic feet in reserves representing 45 percent of total production in Indonesia.

Currently, Tohoku Electric Power Co. imports about 3.01 million metric tons a year of LNG from the Arun field, while Tokyo Electric Power Co. takes 510,000 tons a year, The imports are arranged by Japanese trading giant Mitsubishi Corp.

Although the Pertamina official declined to provide further details on the volumes under negotiation, he said that suppliers were facing intense competition.

"Demand is very small, but there is a lot of available production from all over the world," said the official. "As far as Malaysia and the Middle East, there's a lot of LNG to be offered and buyers may have some advantages in bringing the price lower."

Although the Arun field is rapidly depleting, with the Arun LNG plant slated to close in 2014, industry officials are concerned that without an extension of the contract, Indonesia could see Japan turn increasingly to Australia, which is developing the huge Gorgon field. Partners in Gorgon include units of Chevron Corp., Texaco, Mobil Corp. and the Royal Dutch/Shell Group (RD).

"If Indonesia doesn't take this opportunity (to extend the Arun contract), we will lose it to the Gorgon project and if that happens we're going to be in trouble," said a Jakarta-based industry source close to the deal.

An official at Tohoku Electric Power told Dow Jones that the company has been considering the Arun extension as one of their options for LNG procurement, but has yet to conclude anything. A Tepco official said the company isn't under negotiation with Pertamina to extend the Arun contract which is set to expire December 2004.

"Since we are currently taking Malaysian LNG, and will start procuring from Qatar in 1998, the extension of Indonesia's Arun contract isn't necessarily appealing," the Tohoku Electric official said.

The Arun LNG plant is owned 55 percent by Pertamina, 30 percent by Mobil Corp. (MOB) unit Mobil Oil Indonesia Inc., and 15 percent by Japan Indonesia LNG Co. Indonesia is the world's largest LNG exporter, responsible for about 35 percent of world LNG trade.